Payday Loans

One of the most common loans available today – possibly THE most common – is the payday loan. True to its name, the loan is one that’s meant to pull a family along until the next payday.

Payday loans are short-term advances typically offered by small lending agencies, often dedicated solely to payday loans. The concept behind the payday loan is relatively simple: they’re designed to keep the borrower afloat until their next payday, at which point they pay off the loan. A payday loan may last only a few days and prove sufficient to prevent financial difficulties until a bank account is filled. Payday loans are available through physical stores and online.

A typical payday loan will have the borrower write a pre-dated check for the full amount borrowed, plus extra fees, to the lender company. On the day of maturity of the loan, the borrower is expected to physically pay back the amount in full, plus the extra fees, to the lender. Should they not do so the lender will cash the check, potentially incurring extra fees should the borrower’s bank account not contain sufficient fees for repayment.

Payday loans are aptly named. For the loan to prove beneficial to the borrower it must be repaid in short order, as interest fees rise dramatically the longer the loan goes unpaid. As such payday loans are only recommended to those who are assured their paycheck, as delaying on repayment can quickly result in massive debt compared to the original amount. Because the interest rates are so high, most people are instantly eligible for payday loans.

Because payday loans incur such massive fees if delayed, their use is considered rather controversial and subject to clashing legislation in different U.S. states and around the world. (Indeed, many U.S. states have outright banned payday loans.) Usury laws typically prevent an excess of debt accrual, though the borrower must always remain wary of borrowing more than they can handle. Many payday loan companies are criticized for taking advantage of low-income families and doing nothing to promote savings or regulated spending.

Because payday loans can result in even more dire financial straits, they are typically not recommended by financial experts, or at least not if the borrower is irresponsible with their finances. At best a payday loan should serve as temporary, last-ditch relief during a rough pay period. Because the borrower will inevitably pay more than they originally put into the loan, other measures may prove superior to a payday loan.